An Update on Electronics Industry Product Outsourcing

Outsourcing is essential to today’s electronics industry. The state of outsourcing is in constant flux as companies search for the lowest-cost and highest-quality manufacturing options.

Who Outsources – and Why?

Today, very little product in the electronics industry is manufactured domestically. Companies such as Fujistu, HP, LG, Samsung, and Sony manufacture the bulk of their electronics products in China, Korea, Malaysia, Thailand, and Vietnam.

Why do electronics companies outsource their manufacturing? There are three main reasons:

Cost

Consumers have come to expect high-quality electronics goods at low prices which are difficult if not impossible to produce domestically. Therefore, the solution is to outsource manufacturing to countries that have a lower labor cost.

Capacity

Many companies lack the in-house resources to meet the ever-increasing consumer demand for electronic products. Consequently, they must use third parties that have the necessary manufacturing capacity.

Efficiency

By outsourcing manufacturing to third parties companies then can focus on the processes they do best –research and development, marketing and sales, and customer service – leaving the manufacturing to third parties that specialize in the manufacturing process.

How is Outsourcing Changing?

The long-term trend in the electronics industry has been and continues to be towards more outsourcing. This trend, however, is driven by increasing worldwide demand for electronics products. The demand for lower-priced products, even in developing countries, is also contributing to the continued outsourcing to countries with lower-cost labor.

Confirming this trend, Market Research Engine estimates that the electronics manufacturing services (EMS) market will surpass $675 billion by 2024. The report projects a compound growth rate of 7.5% per year.

Are Trade Wars Impacting Electronics Outsourcing?

There is a desire to bring more electronics manufacturing back into the U.S. but unfortunately, that will be an extremely difficult task. Domestic wages are much too high for electronics manufacturing to be competitive in today’s market. One example: Compare the $11.91/hour average salary of a U.S. factory worker with the $2.73/hour rate in Vietnam. In addition to the lower cost of labor, countries abroad have established high-tech manufacturing infrastructures that would be cost-prohibitive to build from scratch in the United States.

The current trade war between the United States and China is just now having an impact on outsourcing in the electronics industry. While it’s possible that tariffs could result in higher domestic prices for imported products, it is equally likely that companies will move production from one affected country (such as China) to another that is not impacted by tariffs such as Vietnam. USA Today reports that 41% of American companies currently manufacturing in China are considering shifting their manufacturing to other offshore countries. For example, Apple is considering moving some production to India, and GoPro may move its manufacturing to Mexico.

Professional Help May Be Your Next Step

In short, the manufacturing industry is constantly changing as companies search for the highest-quality, lowest-cost offshore solutions. What this means for your electrical product manufacturing will depend entirely on your specific needs.

Let’s talk about it! ITI Manufacturing is a US-based manufacturing liaison with expertise in managing the manufacturing supply chain in various overseas countries. Our goal is to help US companies who wish to manufacture offshore, or who experience current challenges, successfully navigate through the process. Learn more now about how we can help you! Call to speak with one of our liaison experts at 888-574-6823 for immediate assistance. It costs you nothing to call ITI and speak with one of our experts!

Mike Stewart joined ITI in 2002 and is Vice President of Business Development. He has a BA in Business and Journalism from SFA University. Before joining ITI Mike sold, installed, and trained businesses in comprehensive business computer systems in the medical and automotive industries and served as Executive Vice President of a video news magazine production company.